Nonprofit may take over state hospitals

Hilo Medical Center and seven other public health facilities on the Big Island, Maui and Lanai may fall under new management.

Phoenix, Ariz.-based nonprofit Banner Health has been in talks since July with Hawaii Health Systems Corp. to take over its operations of the state’s Maui, West Hawaii and East Hawaii regions, according to HHSC Board Chairman Avery Chumbley.

He said that a partnership with the larger company would, among other benefits, help to wean the facilities off of state subsidies, which total $82 million for HHSC statewide.

“The intention would be that the state would continue to provide some subsidy on the front end for a short period of time, and then decreasing over time,” he said. “Within seven to eight years, we would see the complete elimination of the subsidy.”

Banner, which operates 23 acute-care hospitals and health care facilities in seven states, employs more than 35,000 people. It reported assets of $6.7 billion in 2011, as well as revenue of $4.7 billion. HHSC currently operates 12 facilities across the state in East Hawaii, West Hawaii, Maui, Oahu and Kauai. The company reported as of June 30, 2011, net assets of $512 million, and revenue of $488 million.

“Banner and our Maui region had initiated some initial discussions through a consultant, Bank of Montreal,” Chumbley said on Monday afternoon. “… At the same time, Banner did meet with the governor, and he encouraged them to look beyond just Maui, which led to discussions with East Hawaii and West Hawaii. … The talks are very preliminary at this point.”

Banner is looking to take over operations at Hilo Medical Center, Kona Community Hospital, Kohala Hospital, Hale Ho‘ola Hamakua, and Ka‘u Hospital on the Big Island, as well as Lanai Community Hospital, Maui Memorial Medical Center, and Kula Hospital.

Chumbley estimated that about 3,000 of HHSC’s 4,300 employees would be affected.

However, there are still plenty of hurdles to be cleared this early in the process, he said, with any possible deal being between four and six months away, if negotiations get that far.

“What we’re envisioning is that Banner would lease from HHSC these facilities. It’s clear that the state has entrusted these facilities to HHSC, and we’re the custodial owner of them. The law does prohibit us from selling those assets, but it does allow us to form a public-private partnership to lease those facilities,” he said.

What such a lease deal would mean for current employees remains to be seen, he added.

“I can say that there would not be any facilities that would be shut down at all,” Chumbley said. “But as far as the impact to the employees, this is just in the initial discussions. Rural hospitals are our safety net hospitals, we don’t have any other choices. (The employment issue) is going to be very critical and a major point of discussion as these discussions continue. There will be changes, but will any people get laid off? … It’s still early.”

Chumbley added that Banner, a non-union shop, had made a commitment to work with employee unions in Hawaii by possibly forming a separate collective bargaining unit.

“Any partnership here would have to have a collective bargaining agreement,” he said. “There is some fear among employees that the company would come in and lay everybody off, or they would lose their benefits. None of that has been discussed or negotiated at this point. I think there could be a move away from the traditional benefit-loaded costs … I see a higher pay scale with scaled back benefits.”

A page on Banner’s website — titled, “Why Union Free?” — explains the company’s stance on unions. Among its points:

• “We believe that unionization is not in the best interest of our employees.”

• “Unions don’t add value or increase the bottom line of a health care system. In fact, many times unions add to the cost of operating the facility.”

• and, “With a union, all current wages, benefits, and working conditions are subject to negotiations. Employees could end up with more, the same as the started with, or even wind up with less. There are no guarantees.”

A spokeswoman for Banner did not return a phone call seeking comment by press time.

On Monday, the Hawaii Government Employees Association posted a statement on its website calling into question how employees might be impacted by Banner’s “anti-union stance.”

“The prospect of Banner Health’s takeover is unsettling,” said HGEA Executive Director Randy Perreira. “Frankly, it is incomprehensible that the state would willingly relinquish neighbor island health care decisions to a mainland facility. This proposal certainly wouldn’t be in the best interest of our local communities and our state.”

State Sen. Josh Green, D-Kona, Kohala, chairman of the Senate Health Committee, said Monday that such questions, and many others, would have to be answered before he would entertain the notion of signing off on a deal.

“This is a huge and important question for health care in Hawaii,” he said. “This is probably the most important issue we’ll take up in the health committee this year. I understand that Banner does good work on quality outcomes, but we need to see the full breadth of their proposal before making any decision, yes or no, on their fit for the Big Island.”

Green said there is still some question about what kind of legislative approval such a deal would require, although he believed that the company’s lease of the Maui properties could go through with little legislative participation.

“Lots of large questions will have to be answered. … This is a statewide economic question. If Banner has an idea that would do better than what HHSC does, I would be the first one to be supportive. But if their plan isn’t fully sound, I won’t move anything out of the health committee,” said Green, who is a physician.

Chumbley said that, should a deal go through, Hawaii residents in the affected regions could expect a better level of health care that would end up costing taxpayers less.

“That’s where Banner shines,” he said. “They are more efficient … in their use of people, their management of health, their work towards clinical improvements, managing chronic diseases, along with technology and a robust engagement of their physicians. It has allowed them to reduce health care reimbursement costs.”

He added that the multi-billion-dollar company also has the much-needed capital to invest in and improve Hawaii’s facilities.

“We’re struggling,” Chumbley said. “We have close to $1 billion in unfunded capital improvements that could be done. … We’ve got some aging facilities, and there are significant investments that HHSC cannot make. We don’t have the capital. Someone like Banner, with almost $5 billion in operations, they’ve got access.”

Chumbley explained that HHSC began last year a search for possible partnerships in response to declining reimbursements in the face of increased costs.

“I think the underlying reason this is taking place is that … HHSC continues to face a complex and ever-changing health care environment. Compounding that is an uncertain financial future and the unparalleled force to change, just as other systems across the country are doing.

“We’re experiencing this situation because of the Affordable Care Act and fiscal cliff negotiations and changes in debt and debit ratios. We’re also going to see a decrease in reimbursables in Medicare. Add to that the unsustainable General Fund dependency on the state of Hawaii, and we’re in a situation where the governor and the Legislature are saying, hey, we can’t continue to fund HHSC at the same level we have in the past,” he said.

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